By Randall Osborne

West Coast Editor

Photogen Technologies Inc. gained a $40 million equity line through a deal with Rochelle SA, of London, which will act as Photogen's placement agent and try to sell stock to overseas institutional investors.

As part of the agreement, Knoxville, Tenn.-based Photogen registered to offer up to $40 million in stock at prices to be determined at the time of sale. The company's shares (NASDAQ:PHGN) closed Monday at $5, down $1.625, or 25 percent.

"It won't be [taken down] all at once, and the company has the ability to decide how much we want and when we want it," said Taffy Williams, president and CEO of Photogen. "We're looking for a small amount, up to $5 million in the first tranche, but there's not a set number."

Photogen is focused on developing cancer diagnostics and therapeutics that are less invasive than current approaches.

In a joint venture with Elan Corp. plc, of Dublin, Ireland, Photogen has completed Phase I trials of the cancer diagnostic N-1177. The two firms aim to commercialize nanoparticulate diagnostic imaging agents for the detection and treatment of cancer that has spread to the lymph nodes. The joint venture's goal is to develop a treatment that would cut the number of lymph node surgeries in half by precisely locating the nodes where the cancer has spread, and possibly treating the affected lymph nodes.

Under the terms of the deal signed late last year, Elan is providing Photogen with a credit facility to fund its share of the development costs, and purchased $6 million in Photogen's common stock.

"The Elan deal has pull-down financing still available," Williams said. "I think it's around $4.8 million left."

N-1177 is "a material that, when injected, is taken up into the lymph nodes," he said. "Those that have become cancerous don't pick it up. The node that contains cancer doesn't show up as brightly."

Photogen also is working on PH-10, a photoactive chemical agent to treat certain tumors. An investigational new drug application (IND) will be filed in the coming months.

"We're trying to get it into Phase I sometime this year," Williams said. "So far, it seems to work in animals on all the tumors we've tested. We're trying to select the most appropriate one for humans, and pull together the IND."

Experiments have been conducted in melanoma, as well as tumors of the breast and gall bladder. Head and neck cancer is another human indication that is under consideration, Williams said, but other companies are also studying that indication.

"We want to make sure that when we get in, we can get out," Williams said. "We know there's a number of studies ongoing in head and neck, and we want to make sure we can deliver the patients."

PH-10 can be used in one of three ways, Williams said. At high doses, it seems to kill tumors by itself. "In some experiments it appears, when animals have been re-challenged, the cancer doesn't take," he said. "When injected at the tumor, it seems to stay there."

At a mid-range dose, radiation can activate the drug and cause it to kill the tumor, Williams said. At a low dose, it's light activated.

Earlier this month, Photogen was granted five international patents for its Two-Photon Excitation (TPE), which uses lasers to generate light energy. A narrowly focused laser beam excites photoactive agents, thereby selectively destroying tumors and leaving healthy tissue unharmed. As a diagnostic, TPE is combined with signal processing technology to enhance the clarity of hard-to-define images such as cells or tissue.

The laser technology, however, is separate from the drug development, Williams said, although lasers can be used to excite PH-10 at low levels.

"Our long-term focus will be as a pharmaceutical-based [rather than device-based] company," he said.

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